We cannot confidently navigate our future if we don’t know where we are coming from. As a trader, you have to be organized by recording your daily entries in a well-documented diary, so as to have a yardstick for self-assessment and learning.
A trading journal is a log you use in recording your trading activities, which would show and reflect all essential elements relating to your trade. It is a necessary tool you need to have by your side as you commence trading. If you are already trading and you are yet to have it, it is advisable to get it without delay.
Due to the volatility of online trading, having a trading journal avails you data to analyze your past performances, and to see if your trading plan is working as required.
The journal would help you identify your strengths, weaknesses, your errors and unfavorable habits. One important point you should note is trading journal should be prepared before you commence active trading and not when the trading activities have started.
You can create it manually with a notebook or on a spreadsheet on your computer. Trading journal Apps can also be downloaded online.
Why should you have a Trading Journal?
While keeping a journal is important for all traders, be it F&O, or CFDs, we will try to explain it from the perspective of a CFD trader.
It has been estimated that over 80% of retail online forex & CFD traders lose their money due to many risks involved. That is why the major regulators have made it mandatory for brokers to restrict the leverage & some regulators even make it mandatory for the brokerages to publish the percentage of their clients that lose money on their platform.
One of the various reasons why many traders experience loss is because they don’t use a trading journal, so they don’t know why they lost or what they are doing wrong, or if there is a pattern of mistakes.
You should have a trading journal because of the following reasons:
Checking and analyzing your previous trading records from you trading journal, would help you sit down and think about the entire trading activities. It would make you decide whether to continue, quit or adjust.
To discover your strengths and weaknesses
Daily monitoring of your trading activities through a well-documented journal, would help you discover where your weakness lies and make necessary adjustments so as to curb losses. It would also help you in identifying your strengths and where to focus your energy.
To measure your performance
Your journal would provide you with insight into how well you are doing in the course of your trading. By properly x-raying what you are doing, you would be able to ascertain your win rate.
Keeping good records of your trades to look back on and see how well you have performed, can really build your confidence. Sometimes, you may be surprised that you have performed well even beyond your expectations; this can be a good source of motivation for you.
To help you plot better strategy
Through your journal, you would be able to review new trading strategies having experimented with different modes of trading. Should you decide that it’s time to dump your old strategy and create a new one, your trading journal would help you do that.
It will help you to be organized
A trading journal will ensure you don’t forget important details since everything is written down. Having all the data in one place makes for a clean workspace and helps you avoid errors.
Trading journals are a must have especially when trading derivative instruments such as CFDs & options. Due to their complex nature derivatives need to be traded with caution and every step documented. Important information like strike prices for options contract, expiry dates etc., need to be documented”
A trading journal acts like an organizer and ensures you don’t make costly mistakes.
To investigate mistakes
As a human, mistakes are unavoidable during the course of your trading. So, having a journal would help you in avoiding making the same mistakes again. If anything goes wrong in the course of trading, you would be able to retrace your steps and investigate what happened.
It will help build your trading bots
Trading bots are software programs that perform trading functions through the usage of artificial intelligence. For those dealing in algorithmic trading, your trading journal would help you with some of the required data and information needed to build your trading bot.
It will help you manage risk
A trading journal would help you spot grey areas where you are experiencing lapses in terms of risk management. It would help you know if you are not taking enough risk by putting stop loss very close to the present price of the asset.
It would also help you know if your trading position is small to experience significant benefits. This is because from a trading journal, you can get sufficient data to calculate metrics such as risk to reward ratio.
How to Download the Trade History to create your Trading Journal?
The first thing you need to create your journal would be the log of all your trades. Let’s say you want to create a journal for ‘May’ month, then you will need the list of all the trades you took in that month.
You can do this by downloading the statement of your transactions from your broker’s customer panel.
For example, if you are a forex trader, then you should download the list of all your trades from your broker’s platform. A popular platform is MetaTrader & most of the MAS regulated forex brokers in Singapore according to this list offer MetaTrader platform. You can view your trade history from ‘Account History’ under the ’Terminal’ tab. You can select the date range & download these custom reports.
You should next consider what you should include in your Journal.
What to include in your Journal?
- Date: It would help in investigations. For example you may realize that the loss you made when trading a certain country’s currency, coincided with the time that country was having an uprising and their currency lost value due to it.
- Time: This refers to the time you entered the trade and the time you exited the trade.
- Your Mental State: You should study and write down your entire state of mind before, during and after the trade. Were you moved by confidence or anxiety? Were you influenced by panic trading or revenge trading?
- Screenshots: Usage of screenshot is advisable because manual writing can contain errors. Input the screenshots as a picture tells a thousand words.
- Entry and Exit Price: The price at which opened a position is your entry price while exit price is the one at which you closed your position;
- Type of security traded: You need to write down the currency pair or name of the asset you are trading for future reference.
- Profit Target: This is the future price of an asset projected by you. Your profit target is how much you hope to make from the trade, and is an important metric for calculating risk to reward ratio.
- Contract Size: This is the number of shares you purchase in a trade
- Stop Price: The price in which you placed your stop order
- The reason for your trade: This is what prompted you to open the trade such as momentum, resistance ceiling crossed or reached, bearish candles etc.
- What went right and what went wrong
- Profit or Loss: This is very important in your journal. It is the summary of financial statement that covers your trading revenues and expenses. You can know this by subtracting the total expenses including commissions, trading fees and tax from your revenue.
The best Trading Book to Read is your Trading Journal
A trading journal works like a camera to capture moments in the present for reference in the future. Always have one and customize it to suit your personality. It will help you define your trading journey and answer a lot of questions you will have down the road.